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Wednesday, May 30, 2012

It's taken me too long to realise it, but when I retired for a quiet meal after the federal budget lock-up this month, it struck me: there's truth to the opposition's charge that Labor is a big spending, big taxing government. Mind you, there's not as much truth to it as Tony Abbott & Co would like us to believe.

At one level, there's no truth at all. In the coming financial year, federal government spending is expected to equal 23.5 per cent of gross domestic product. It exceeded that level in nine of the Howard government's 12 budgets.

Federal tax collections are expected to equal 22.1 per cent of GDP, well down on the 23.7 per cent they reached in 2007-08, Howard's last budget. Were tax collections still that high, the taxman would be pulling in $25 billion more than he's expecting to.

So Labor can't be accused of being a big taxing government. It may be about to introduce two new taxes - the carbon tax, worth $7 billion a year when it gets going, and the mining tax, worth $3 billion a year - but it's giving back all the proceeds. That's why its expected budget surplus is wafer-thin.

So what's the problem? Well, I'm not sure if this vintage of Labor believes in Big Government but they surely hanker after its fruits. As I'm about to show, they're always initiating big spending programs.

Why then isn't their spending adding up to more than it does? Because, as their critics on the left keep pointing out, they have a fixation on returning the budget to surplus.

How do they reconcile their desire to spend big with their desire to return to surplus? By indulging in a kind of fiscal bulimia. They go through each year greedily gobbling up all these new spending delicacies, then at budget time they put their finger down their throat and vomit what they've eaten off into future years.

Kevin Rudd came to office promising an education revolution. You may not have noticed much change but it's not for want of spending. In five years, Labor's education spending has increased 60 per cent to $30 billion a year.

Rudd also promised to fix the inadequacies of the health system. Though every doctor you meet will assure you this miserly government isn't spending nearly as much as it should, under Labor federal spending on health has increased 37 per cent to $61 billion a year.

Rudd always wanted to be able to say his new policy was the biggest and best ever. He did that in 2009 when, standing in front of a frigate, he released a defence white paper that he claimed was "the most comprehensive of the modern era".

He had a much bigger and grander vision for defence than his predecessors, which he backed up by promising to spend a lot more money: a more generous indexation arrangement, plus extension of the commitment to real annual growth of 3 per cent.

But this is the most remarkable example of fiscal bulimia. In the four budgets since then, Labor has never once delivered the spending increases it promised. Another example is the deferral of Labor's promise to raise its overseas aid payments to 0.5 per cent of gross national income.

In all his time in power, Howard studiously avoided increasing the base rate of the age pension, knowing it would be far too expensive. But Rudd did it in his second budget - at a cost that, with indexation to average earnings and an ageing population, will grow and grow as the years pass.

For years, the self-seeking urgers in the superannuation industry sought to persuade the government to increase the rate of compulsory super contributions for employees. Howard always resisted but Labor gave in. Between 2013 and 2019, the rate will be increased from 9 per cent to 12 per cent of ordinary-time wages.

Ostensibly, the considerable cost to the budget of the concessional tax treatment of super contributions will be covered by revenue from the mining tax. But that cost will grow and grow - at a much faster rate than the tax grows.

Labor was keen to introduce paid maternity leave. In the good old days, a government would simply have imposed the cost of this on employers. But business gets a lot more privileged treatment these days, so this significant cost is being picked up the taxpayer.

Howard resisted pressure to increase federal spending on infrastructure but not Rudd. His greatest project is the gold-plated, Rolls-Royce national broadband network (though much of its cost is "off-budget").

You might think all this munificence came from Rudd, not Julia Gillard. Until we come to this year's budget. It includes greatly increased spending on dental health, taking us another step down the road to expanding Medicare to include dentists.

And it commits $1 billion to making a start on a national disability insurance scheme. When fully introduced, the scheme will cost $6 billion, maybe $8 billion a year. How would this cost be financed? Gillard doesn't know or care.

I must make it clear I approve of most of these new spending commitments. And I'm prepared to pay more tax to cover them. But Gillard and her party would run a mile before admitting taxes will need to be higher, not lower.

If Abbott inherits this grossly overcommitted budget - bringing with him his promises to abolish the two new taxes - just watch him walk away from Labor's grand spending projects: the national disability scheme, the overseas aid promise, the national broadband network, big education spending, the grand defence plan and the increase in super contributions.